Case Study

Emissions Trading in Mexico: Analysis of Carbon Leakage Risks

The German development agency, GIZ, and the Mexican environment ministry, SEMARNAT, asked Vivid Economics to assess the potential competitiveness impacts and the risk of carbon leakage of an emission trading scheme (ETS) in Mexico. The work combined a top-down and a bottom-up approach. The top-down analysis used the Global Vivid Economy-Wide (GViEW) model – a recursive dynamic CGE model – to estimate the ETS’ impacts on the domestic economy and trade flows under different scenarios, including a US withdrawal from the Paris Agreement. The bottom-up approach employed international indicators to determine carbon leakage risks on a sub-sectoral level. The final synthesis offered policy recommendations on carbon leakage mitigation and Vivid presented the results at a workshop for high-level government officials and industry stakeholders. Vivid’s work has directly supported implementation of the Mexican ETS in 2019.